What to know about lines of credit

20 April 2019 by National Bank
lines of credit

Do you need money quickly? A line of credit is a simple tool that can help you carry out your goals or cover an unexpected expense. See if it’s right for you.

What is a line of credit?

A line of credit gives you access to a pre-authorized amount of money at any time. You have the freedom to use it in any way you like. You can easily access your funds with your debit card, online or at an ABM. There are no monthly service fees.

Without question, the greatest characteristic of a line of credit is its flexibility. The minimum repayment each month is often the total interest or a predetermined percentage of the balance. Therefore, you can pay the remaining amount at your own pace without facing penalties.

Why should you get a line of credit?

The interest rate for a line of credit is often much lower than other types of financing. By paying less interest, you can kiss your debt goodbye much faster!

A line of credit can also serve as a safety net. Because you can’t predict the future, it could be practical if you do not have a contingency fund or if your funds are difficult to access. In no time, you will have access to your money.

Different types of lines of credit

There are many types of lines of credit according to your needs. Here are the main ones.

Home equity line of credit

Homeowners can be granted a guaranteed line of credit through their home. By requesting it at the same time as a mortgage, no additional visit to the notary is required. Owners benefit from a very advantageous interest rate. The amount available varies depending on the net value of the property, i.e., its value less the amount of the mortgage. This type of line of credit is useful to cover important expenses such as major renovations or purchasing a new car.

Personal line of credit

This line of credit is available to anyone, as it is not guaranteed by real property. Its interest rate is generally higher than that of a home equity line of credit, although much lower than that of a credit card. The personal line of credit is ideal for contributing to your Registered Retirement Savings Plan (RRSP), paying for last-minute travel or for any unexpected issues.

Line of credit for students

Students can access a line of credit adapted to their individual situation. It can finance their studies or cover certain expenses, like buying a computer or appliances for their first apartment.

How does a line of credit compare to other methods of financing?

Your bank also offers other financing tools that can help you carry out your plans or help you when you’re in need.

Personal loan

If you lack the discipline to make your repayments, a personal loan may be a better option for you. You will be obligated to make repayments on a strict schedule and cannot spend the repaid money again. The line of credit, for its part, is repaid at your own pace and you can always access the available funds.

Credit card

Interest on a line of credit is calculated from the first day of the loan whereas with a credit card, you benefit from a 21-day period before it’s calculated. You also have access to rewards programs and other benefits like cashback or insurance. On the other hand, the interest rate is much higher than that of a line of credit.

Whatever your plans, your financial advisor can help you choose the financing method best suited to your needs!

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